Pharma exporters expect Trump to act benevolently to them
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Mumbai: Large Indian drug makers, some of which get as much as half their revenue from the US market, may have to work out options to pass on the impact of the tariff that Washington announced Wednesday. However, analysts and industry insiders said the pharma sector may be exempted or the quantum of tariff on it will be lowered.President Donald Trump said imports from India would face a 25% reciprocal tariff, effective Friday. There will also be an unspecified penalty for continued import of Russian oil, he said.Pharma industry insiders said while the contours of the tariff announcement on India are not yet clear, a 25% tariff is 'steep' for a sector that operates on thin margins.While analysts and executives expect Trump to eventually lower the rate to the 10-15% level imposed on some countries in Europe and the UK, they are of the view that companies will be prompted to pass on the dominant share of the cost increase to the customer.'Twenty-five percent is not good for India. However, it looks like a temporary thing and once negotiation happens in bilateral talks between the two countries, it may come down to 10-15%,' said Bino Pathiparampil, head of research at Elara Capital. 'Companies will have to pass on the lion's share to customers.'Vishal Manchanda, pharma analyst at Systematix Group, said the US 'will have to exempt pharma and there will be a likely roll back'.The Indian government said it has 'taken note' of the US announcement and is studying its implications. It also said India and the US have been engaged in negotiations on concluding a fair, balanced and mutually beneficial trade agreement.Several experts said the pharma industry may be spared from or considered separately for the levy as supplies of generic drugs from India are key to keeping healthcare costs affordable in the US. A steep tariff on the sector could lead to drug shortages in certain critical areas such as antibiotics and cancer drugs. Also, it will lead to cost increases that may eventually have to be passed through to the consumer or absorbed by insurance companies.The market has been expecting a 10% tariff on pharma imports from India. Even if half of that is passed on to patients or absorbed by insurers, still large Indian pharma companies may face a 3-5% impact on their earnings in fiscal 2027, according to sector analysts and industry experts.Manoj Mishra, partner and tax controversy management leader at Grant Thornton Bharat, said the US announcement has not specified any tariff on pharma. 'However, the strong language used by President Trump and ongoing investigations into drug imports mean that the risk is not over yet,' Mishra said. 'Indian pharma companies should stay prepared for possible changes, especially if sector-specific duties are introduced later.'Pharma companies are closely watching the developments around tariffs.A potential US tariff on the pharma sector is a significant 'unknown' and will be one of the key developments for Dr Reddy's Laboratories to watch over the next few quarters, chief executive officer Erez Israeli told ET recently.Umang Vohra, managing director and global chief executive at Cipla , told ET last week that he does not see potential tariffs having a 'debilitating effect'. There will be an impact, but it will not derail the business, he had said.Large generic drug makers and contract manufacturing organisations such as Dr Reddy's, Zydus Lifesciences Sun Pharma and Cipla, have a big share of their revenue coming from the US market.India is a major supplier of generic medicines to the US market. India exports about $9 billion worth of formulation in value terms to the US, but accounts for 40% of the medicines consumed in that market. In comparison, the European Union has just a single-digit percentage of the market, exporting $140-150 billion of drugs.Industry officials are hopeful that Trump will consider a roll back for the pharma sector as it could lead to many negative repercussions for the US.'They may have to roll it back or lower it to 10%,' said a pharma industry executive. 'India and the US have a strong relationship. The US government will perhaps reconsider and work out a balance,' the person said.
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